Numbers of the Week

ECB upgraded its inflation outlook for the euro area to 1.4% in 2018, compared to 1.2% in a forecast from September. Projections for 2019 remained unchanged at 1.5%; for 2020 the ECB expects inflation to rise to 1.7%. Despite the increase, the projections fall short of the ECB inflation target of just under 2%. The GDP growth forecast for 2018 was revised up from 1.8% to 2.3%. (ECB)

Employment growth in the EU fell to 0.3% quarter on quarter in Q3 2017, down from 0.5% in Q2. In the euro area employment growth remained stable at 0.4%. Quarterly growth in the UK fell from 0.4% in Q2 to 0.0% in Q3, the slowest growth rate among larger EU economies. Year on year, job growth in Q3 stood at 1.8% in the EU and at 1.7% in the euro area. (Eurostat)

Euro-area business sentiment in December at highest level since February 2011. The survey-based Purchasing Manager Index (PMI) climbed to 58.0 points this month, up from 57.5 in November, suggesting increased economic growth. PMI growth in France outpaced that seen in Germany for the third consecutive month. (IHS Markit)

US Federal Reserve raised key interest rate by 0.25 percentage points on Wednesday, the third rate hike in 2017. The target range for the federal funds rate is now at 1.25-1.5%. The Fed flagged three further rate hikes in 2018 and two in 2019. Inflation in the US is projected to remain below the target of 2% in 2018 but to return to target in 2019. (FOMC, FT)

Chart of the Week

EU close to defence investment target but underperforms on defence R&T spending

From 2011 to 2014, EU-27 spent on average 19% of total defence spending on investment and 1% on research and technology (R&T) for defence purposes. Collective benchmarks for the member states of the European Defence Agency, set in 2007 and reaffirmed as part of Permanent Structured Cooperation (PESCO), stipulate a figure of 20% for investment in the medium term and 2% for R&T.

Of major EU defence players, only France and Poland are spending more than 20% of their defence expenditure on investment. The former is also the sole country that spends 2% of its defence budget on R&T. The rest of the displayed countries have instead cut their investment spending, most drastically Greece.

Poland mostly invests in defence equipment, while France and Germany remain R&T leaders. The European Defence Agency has frequently stressed that R&T is a necessary condition for maximized long-term capability.

European Commission wants to spend €500m per year on defence research from 2020 on, within the framework of the European Defence Fund. This would render the Commission the fourth biggest defence-research investor in Europe, behind the UK, France, and Germany.